You're referring to one of the four main points accepted into the Treaty of Versailles after World War I. Self Determination as an idea was advanced by US President Woodrow Wilson in his famous Fourteen Points for world peace after what many considered the "war to end all wars".
This point challenged the tendency of empires to control peoples and lands of different ethnicities and backgrounds. For example, Germany and Russia controlled all of the Polish people, while Austria-Hungary controlled the Serbians and others. Wilson pointed to this as a cause of war, and by ending the practe, suggested we might be abe to avoid future conflicts. Poland, Czechoslovakia and Yugoslavia became independent nations using this principle, and Wilson was widely admired in those countries because of it.
Self-determination was more of a personal talking point of President Wilson and the ideology behind the League of Nations. The Treaty of Versailles itself makes little reference to the idea of self-determination, nor does it take action upon it; for example, it required Germany to give up all of her overseas colonies, but most of these were simply transferred from one imperial administration to another, such as German East Africa, which became British and Belgian territories for the next 50 years.
It should be remembered that Wilson was not broadly admired or respected for his views, however attractive they were from the PR standpoint. Many of the European Allies had little interest in establishing a long-term strategy for peace; if Germany was a boiling pot, they preferred to clamp down the lid rather than turn down the heat. Wilson appeared to be a late-coming, overly-educated schoolteacher who didn't know what he was talking about. It might also be considered that despite his calls for self-determination, Wilson was unable to abide by this ideal even within the United States, such as by completely excluding the Republicans from involvement in the negotiations.
Additionally, self-determination as outlined in the Fourteen Points was not a synonym for sovereignty; instead it calls for "adjustment" of colonial claims with "equal weight" given to the interests of the population and the government when determining questions of sovereignty. This amounts to a very weak ideological scolding rather than a clear directive.